Business Update with Mark Lacter

Governor Rick Perry tries to lure California businesses to Texas

KPCC's business analyst Mark Lacter says Texas Governor Rick Perry's plan may be misguided.

Steve Julian: Mark, what's working for or against him?

Mark Lacter: First off, Steve, his timing in trying to recruit businesses out here is pretty bad.  Job growth in California has been outpacing the nation, the state's fiscal situation is improving, the housing market has been coming back over the last few months – this is not the place it was just a few years back.  As for Texas, yes, job growth has been strong, but those jobs are often the low-wage, low-skilled kind, and they could easily move from Texas to some other state (or some other country) where the wages are even cheaper.  One other point Gov. Perry neglects to mention is the disastrous health care system in Texas.  Roughly one quarter of the population is uninsured – that's the highest level in the nation, higher even than California, which itself is pretty bad.

Julian: Then why is he making a big stink about the federal Affordable Care Act?

Lacter: He believes Medicaid should be turned into a block grant for the state, which many experts say could make a bad situation a lot worse.  In any event, it's worth pointing out that there hasn't been any great exodus of California businesses and people to Texas.  Sure, companies have left over the years in slightly larger numbers than companies coming in, but what's often not factored is the large number of business start-ups in California - way more than in Texas.  To give you an idea, more than half of all venture capital funds in the U.S. involve California companies.

Julian: And, aren’t most businesses formed by old-fashioned scrimping and borrowing?

Lacter: That’s right – family savings or credit cards or some other lending source.  The thing to remember about California is that you can't really duplicate it.  The consumer market is huge, the university system is still the envy of the world - despite all the cuts and tuition increases - and the state remains a real haven for highly-skilled, highly-creative workers.

Julian: But...

Lacter: We shouldn’t minimize the problems – but, it's worth pointing out that if the naysayers had been right over the years about the supposedly terrible business climate and the unacceptably high taxes, well, the freeways would be a lot emptier than they are this morning – and, I suspect business owners realize as much.

Julian: Speaking of the California economy, it's Academy Awards time - what's the impact?

Lacter: Well, you've probably been noticing all the TV commercials, newspaper ads, infomercials, billboards, interviews, and most every kind of marketing technique that you'd see during the final weeks of a political campaign.  The advertising efforts really began last fall, but in these last few weeks the two films duking it out are "Lincoln" and “Argo.”  "Lincoln" was an early favorite to take the top prize, but its chances have been fading quite a bit, and now "Argo" is the overwhelming pick to be named Best Picture.

Julian: What kind of money is involved in all this?

Lacter: The figure generally tossed around is $10 million for each of those films, which is around double the usual amount.  Throw in the other films, and you're probably looking at the costliest ad campaign ever.  (And, as with political campaigns, there's no limit to how much a studio can spend on advertising.)  Now, what we're seeing in L.A. is not aimed at the general moviegoer, but rather Academy voting members, who - by the way, Steve - have until 5 p.m. this afternoon to cast their ballots (the awards are presented on Sunday).

Julian: What does spending $10 million on advertising mean for studios?

Lacter: It could generate millions more at the box office, and also from the sale of DVDs.  And, from an image standpoint, winning can be a huge deal for a studio by attracting both talent and investors willing to bankroll future films.  And, one more sign of better times in Hollywood (and the local economy) are the increased number of Oscar parties this year compared with 2012 - and certainly compared with the recession years.  They’re certainly not spending that kind of money in Texas.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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